Realtors: Homesales will continue to slide

Yesterday, the National Association of Realtors announced that next year will likely bring a second annual decline in existing home sales. Sales of existing homes are expected to decline 8.6 percent to 6.47 million for 2006 and contract another 1 percent to 6.40 million units next year.

Sales of new homes should fall a sharp 17.7 percent this year and another 9.4 percent next year, the NAR projected.

Notwithstanding, local developers are bullish about the future of SW Florida (and particularly Sarasota) real estate, as is evidenced for example in the recent announcement that the Pinapple Square development has been approved and is now moving forward with construction to begin in March of 2007. Of course delivery on these units will not start until 2008 and everyone seems pretty confident that the market will have normalized by then.

Well, my personal opinion is that yes, we will see a continued slow down in the first half of next year with a balancing of our market by mid 2007. I don't think however that we will be up and running back into a red hot sellers market post haste. More likely we will be looking at a few more years of very moderate growth and appreciation.

It will be interesting to see how the sales team for the Pinapple Square condominium towers will position this product. Given that there is an almost 40 months inventory of condominiums in Sarasota, with many of the recently completed condo towers still being empty, one thing is for sure... there won't be a lot of speculators buying Pinapple Square condos in hopes of flipping them. Rather I think they will face an uphill battle, trying to sell these pre construction units in competition with a glut of other, comparable and already built condos, many of which are being offered at rock bottom prices, some even at a loss.

I am curious to see what others have to say...

Zillow Releases New Listing Service

Zillow (www.zillow.com) just announced a set of new features and services for home sellers and real estate agents.

Home sellers and agents can now post listings for homes for sale on Zillow free of charge. This includes uploading photos, entering property details and descriptions, as well as a link to a separate property website.

Home owners can also now submit a "make me move" price, the equivalent of eBay's "buy now" feature.

Clearly this is one of the most far reaching announcements and implication for the real estate industry in 2007. Zillow has taken the first step towards creating a defacto national MLS system, and by making submission of listings free it has in essence made a lot of other sites irrelevant (why pay for a listing when you can get it for free, in a much more effective market place). Through its partnership with realestate.yahoo, and other key portals you can expect listings to propagate throughout the net, plus reportedly Zillow is working on a number of API's that will allow brokers to submit listing inventory and updates automatically to Zillow via XML.

This kind of user friendly approach is by the way exactly what our industry needs. Look out old guard of entrenched real estate monopolists, if you don't start to focus on providing value to the consumer you may very well find yourself out of business - sooner than you think.

As a side note, not only is Bravo working on a new website with full Zillow API integration, you can also expect all Bravo listings to be listed on Zillow within days.

Thomas Heimann
Bravo Real Estate
www.BravoBrokers.com

"Buying or Selling Real Estate any Other Way is simply a Waste of Your Money!" (sm)

Long Term Market Outlook

I went to a local, weekly, real estate investor meeting yesterday (Sarasota REIA) and the question came up what we think about when things will turn around and where the market will be heading.

At the beginning of this year I had forcasted a (very unpopular at the time) drop of 15-20% for this year, and about a month ago I added to this that I expect prices to come down another 10-15% before things begin to stabilize.

To some people this may seem as if I had a negative outlook on the local real estate market. Nothing further is from the truth.

I think it is important to maintain both a realistic assessment of where the market is right now (and that supply and demand are driving forces in any market is simply economics 101), as well as what the long term prospects of this market are.

Clearly, sophisticated investors and multi billion dollar developers understand well that just as there is an inventory overhang today, there will be an equally strong demand for housing in the years to come. Just as supply and demand are irrefutable market forces, likewise demographics will determine what demand looks like a few years down the road.

If you are looking at the horizon 5-10 years out you will understand that this area is poised for significant growth, and I am not just banking on baby boomers coming down here for retirement. The US population as you may know is expanding at an amazing rate overall. The fact that Florida's population continues to grow at a must faster pace is just 'icing on the cake' in my opinion.

An old saying (that I find to be a true absolute that has served me well in many of my ventures in the past) goes like this: "The surest way to success is to do the exact opposite of what the masses are doing."

When the masses were jumping on the real estate, let's buy and flip, bandwagon in 2005 the party was over. The smart money already made their profits. Likewise today, as everyone is screaming panic, the market is falling, sell sell sell, the smart thing is to accumulate some cash and line up financing and strike at deals when you see one. Today there are many motivated sellers and you can easily buy properties at 15% below asking price (in essence buffering for the decline yet to come).

Today there was a very interesting story in the Herald Tribune regarding the gigantic 1.2 MM sf Loop Project in Punta Gorda, and the demographic trends that would support such a project. What does a developer investing $250MM know that you don't?

It's time to stop runnig after the herd like a lemming, and instead to make sound evaluations. If you are looking for a short term flip or fixer upper to sell quickly, forget it for now. If you are looking to make a purchase at a great price that 5 years from now you wished you had made, while still being able to take advantage of historically low interest rates, then maybe now may be a good time.

I for one have put my money where my mouth is. We purchased several properties over the past year and the last thing on my mind is selling them. I bought them with a minimum 5 year horizon on mind. Time will tell if I was right, but following the aforementioned contrarian maxim for success I should do just fine.

November 2006 Market Stats

As of this morning - on the Sarasota MLS - there are 7,880 single family homes and 4,334 condominiums listed for sale, for a total of 12,214 residential properties.

Last month, 292 single family homes and 123 condominiums sold (closed sales), for a total of 415 sales. This means as of right now we have 29.43 month inventory, if no new homes were listed for sale.

The sad truth is that the inventory continues to expand (although at a much slower pace than at the beginning of this year); one month ago there were 11,400 total properties listed for sale with a 28 months total inventory.

The good news is of course that we are going to enter our season shortly during which a large percentage of sales do take place traditionally, and we can I think expect a significant uptick in sales activity.

Now to the overall MLS market analysis:

1. The market seems to stabilize when looking at average home sales prices year over year. Whereas last month there was a 16% drop in average sales prices Oct 06 vs. Oct 05, for November this drop has pulled back to just under 6%. We will see a stabilization in the year over year numbers in my opinion because by November/December 2005 the market already had started go give back some of its gains. It is of course also possible that this is just an anomaly, so let's see what the numbers look like next month.

2. Time to market continues to increase and for homes priced below 1MM the average time to market has increased by 67.75% over last year. Condominiums are affected the most, with an average time to market of 221 days (7 months, 11 days) to sell a condominium priced below $1MM. The average time to sell a home is 137 days. However, these numbers are possibly masked and the actual time to market may be much longer. The reason for this is that once a listing expires or is taken off the market and relisted, the clock starts over. Given that right now well over 70% of all listings expire, it is fair to presume that the actual time to market may well be 6 months longer than the statistics indicate.

3. High end listings are beginning to see an impact. Whereas up until now high end listings seemed to have been isolated from the downturn, two indicators that are becoming visible and give cause to concern are: a) number of units sold has dropped over 51% vs. last year. Compare that to -29% over all. This represents a sharp increase. b) the disparity between listed average and sold averages. While the average selling price is still up significantly over last year, the average list price for new listings is actually down vs. last year. This leads me to believe - together with the fact that new listing averages are BELOW current sales averages that future sales figures may well come down. The inventory accumulation is also much greater in the high end sector than in the lower end, meaning the inventory of high end properties is expanding at a greater rate than inventories overall.

In our actual real estate practice we are beginning to see an ever so slight increase in activity, and we are sales taking place. What virtually all listings that sell have in common is that they are in the top 1% of listings price wise (i.e. top deals), and what we are seeing with virtually all buyers in common is much more aggressive pricing (i.e. low offers) with a willingness to move on immediately to the next one.

I think it's fair to say that home sellers are in an extremely weak bargaining position and may want to consider any offers very carefully. We have seen it over and over again that a seller counters, the buyer walks, then the seller comes back and wishes the buyer would come back with the original offer but by that time the buyers already bought something else.

With over 12,000 homes and condos listed on the Sarasota MLS alone, it is now more important than ever that both buyers and sellers obtain good advise from a real estate agent that does not have their head stuck in the sand of 2005, and who recognizes that today's market conditions require a completely different approach. This holds especially true for sellers.

To access the November MLS Analysis Report, click here for PDF or click here for XLS.

At Your Service!

Thomas Heimann, President
Bravo Real Estate
www.BravoBrokers.com

Home Sales Incentives that actually work

Home sellers have long used incentives to help make their property stand out against the crowd. Unfortunately, many times well meaning home sellers are using incentives that are not effective.

Most of the time incentives are targeted at rewarding an agent for bringing a buyer, such as offering a larger 'co-broke commission' (the commission paid to an agent who brings a buyer), or by offering a bonus to buyer agents.

We tried to find out for ourselves just how effective these type of incentives are and tracked listings taken at various co-broke commisson levels (i.e. 2.5%, 3% or 3.5%), as well as listings for which significant incentives are offered, such as a$10,000 bonus to the selling agent. In the final analysis we concluded that there was literally no difference in likelyhood of sale, based on selling agent targeted incentives.

One of the key reasons for this is that most home buyers use the Internet as their starting point (the NAR puts the number at 78%), and most brokerage websites, realtor.com, home.com and most large portals offer the ability to search the MLS system directly. Many sites - such as our www.BravoBrokers.com - also offer the ability to setup automated searches that automatically alert home buyers of new listings matching their specific search criteria. Most of the time it is the Buyer who actually finds the property (either themselves, or via automated MLS searches).

Since one of the key criteria is price, the best incentive home sellers can make is to price their home accordingly.

Aside from initial pricing, incentives should be targeted at (i.e. benefitting) the Buyer, and not the agent! Examples are:

Payment of Title insurance (usually around 1/2% of purchase price), payment of mortgage payment for first x months (this can be done as a buy down to the lender at closing, i.e. prepayment of interest with first payment being out x months; or a cash credit at closing to the buyer equal to x months of payments); payment of closing costs; a furniture or remodeling allowance; or a number of other items that would be of value to the Buyer.

If you were a home buyer, how would you react to this offer: "No Money Down, and no payments for 6 months?"

If your listing agent suggests offering a $10,000 bonus to the buyer agent, ask yourself how you can put this $10,000 to better use by benefitting the buyer instead.

Home Builders understand this, and for every agent incentive they may offer there are many many more that benefit the buyer: Design upgrades, furniture packages, closing cost credits, no interest or payment for x months, and the list goes on. They understand that incentives offered to buyer go much further.

Bravo Real Estate Announces Big Buyer Savings

Today we are soft-launching our new buyer program under which we offer to pay buyers 75% of our commissions (to include incentives, bonuses, etc). This program is not a scaled down version of our previous buyer agency program, but rather a true full service solution centered around providing significant value to home buyers at a price point that actually makes sense and is not based so much on 'selling' but rather on providing a service.

I am certain that we will be getting (even though we are not officially promoting or advertising this yet past our website) feedback from both agents and buyers.

The new Bravo buyer program has been in 'the works' for quite some time now and we look forward to launching it aggressively in this market place in January.

My feeling is that its is time for a shift in how the real estate business is done, and how we are compensated for the work we actually do. While I can empathize with agents who feel they are justified charging what they do, based on the fact that they only do a handful of transactions per yet, and based on the fact that their broker is charging them all sort of fees, this really is completely irrelevant when it comes to evaluating value vs. payment rendered from the consumers perspective.

No matter how you 'slice it', it simply does not make sense to pay someone $200 or $300/hour for the services rendered. I am sure that if (as it is the norm in Europe) the buyer actually had to write a check at closing to the buyer agency, as opposed to the cost being buried and hidden within the sales price, then this issue would have been raised a long time ago.

The simple truth is that the real estate industry is undergoing a massive paradigm shift and to pretend that things will continue to be done the way they have been done for decades is simply unrealistic and wishful thinking. On that note, I'm sure AT&T would love to still charge consumers 8 cents/minute for long distance.

In my opinion the days of an agent centric real estate industry are coming to an end rapidly and the future belongs to those firms who adopt a client centric and service focussed attitude. We have shown on the listing side that we can provide outstanding (and far above average) service at a drastically reduced rate, and we will show that the same holds true on the buyer side as well.

At Your Service;

Thomas Heimann
Bravo Real Estate
www.BravoBrokers.com